Two individuals who lured homeowners into high-cost, short-term loans secured by an additional mortgage on their homes have settled FTC charges that they violated federal law – and a previous court order against them. Thomas C. Little, an attorney, also settled contempt charges based on his role in facilitating the scam. The Commission sued them and seven other defendants in February 2008 as part of an ongoing effort to crack down on businesses that prey upon homeowners facing foreclosure.

The defendants allegedly violated the Home Ownership and Equity Protection Act by extending credit based on the value of consumers’ collateral without regard to their repayment ability, by requiring balloon payments after only six months, by providing negatively amortized loans that cause consumers to owe more at the end of the loan than at the beginning, and by failing to make required disclosures.

The defendants also allegedly violated the Truth in Lending Act (TILA) by grossly understating the loans’ annual percent rate (APR) and finance charges. They also were charged with violating TILA and its implementing Regulation Z by failing to make timely written disclosures and by failing to disclose accurately the amount being financed, the finance charge, the APR, the payment schedule, the total payment amount, and the fact that the creditor has or will acquire a security interest in the consumer’s home. In addition, they allegedly violated the FTC Act by understating the APR for the loans.

The settlements with Christopher Tomasulo and Bonnie Werner (formerly Bonnie A. Harris) resolve these charges and impose judgments of $2,791,040.40 each, which will be suspended based on their inability to pay. The full judgments against them will become due immediately if they are found to have misrepresented their financial condition. The settlements also resolve charges that Tomasulo’s and Werner’s conduct was in contempt of orders entered against them in an earlier case brought by the Commission, FTC v. Bay Area Business Council, Inc. Those orders prohibit them from marketing credit-related products to consumers and ban Werner from telemarketing.

The settlements bar Tomasulo and Werner from trying to collect payments from any consumers for any credit-related product sold by any of the defendants, and from disclosing or benefitting from consumers’ personal information obtained by any of the defendants. Regarding any business Tomasulo and Werner own or manage, they must promptly investigate consumer complaints, monitor their sales personnel, and take corrective action when sales personnel engage in conduct prohibited by the orders. The orders also extend the period that Tomasulo and Werner must comply with provisions requiring them to report their employment status to the Commission and allow the agency to monitor their business practices.

The settlement with Thomas C. Little, an attorney who assisted the defendants, requires him to give up his earnings from the scam, $16,105. Little was named in the related civil contempt action, FTC v. Bay Area Business Council, Inc. He was legal counsel to some of the Bay Area Business Council defendants, including filing and arguing their appeals to the U.S. Court of Appeals for the Seventh Circuit in 2005.

The Commission votes to authorize staff to file the stipulated final orders were each 4-0. The orders were filed in the U.S. District Court for the Northern District of Illinois, Eastern Division.

NOTE: Stipulated court orders are for settlement purposes only and do not necessarily constitute an admission by the defendants of a law violation. Stipulated orders have the force of law when signed by the judge.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,500 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s Web site provides free information on a variety of consumer topics.